• If you are wondering whether FactSet Research Systems at around US$242.72 is starting to look interesting, the valuation picture is where the answers begin.
• The share price has moved 5.2% over the last 7 days and 16.4% over the last 30 days, even though the year to date return is a 14.8% decline and the 1 year return is a 42.1% decline, with 3 year and 5 year returns of 37.5% and 24.2% declines respectively.
• These moves come against a backdrop where investors are reassessing expectations for capital markets data providers and how much they are willing to pay for earnings visibility and recurring revenues. Recent commentary has focused on how established data platforms are positioned as clients scrutinize spending, which can influence how quickly sentiment shifts around a stock like FactSet Research Systems.
• Right now, FactSet Research Systems has a valuation score of 4 out of 6. The sections that follow will compare traditional valuation methods, before finishing with a more complete way to think about what this score really means for you.

Approach 1: FactSet Research Systems Excess Returns Analysis

The Excess Returns model looks at how much value a company can create over and above the return that equity investors require, based on its earnings power and book value. For FactSet Research Systems, this starts with a Book Value of $58.11 per share and an Average Return on Equity of 29.47%, which feeds into a Stable EPS estimate of $20.23 per share, sourced from weighted future Return on Equity estimates from 4 analysts.

The model compares this earnings power with a Cost of Equity of $5.64 per share. The difference is the Excess Return of $14.60 per share. That excess is then projected forward using a Stable Book Value of $68.67 per share, based on weighted future Book Value estimates from 4 analysts, and discounted back to today to arrive at an intrinsic value.

On this basis, the Excess Returns valuation implies an intrinsic value of about $373.02 per share, compared with the current price around $242.72. That implies a 34.9% discount, which points to FactSet Research Systems trading below the model’s estimate of fair value.

Result: UNDERVALUED

Our Excess Returns analysis suggests FactSet Research Systems is undervalued by 34.9%. Track this in your watchlist or portfolio, or discover 61 more high quality undervalued stocks.

Approach 2: FactSet Research Systems Price vs Earnings

For a profitable company like FactSet Research Systems, the P/E ratio is a useful way to relate what you pay for each share to the earnings those shares generate. Investors generally accept paying a higher P/E when they expect stronger earnings growth or see the business as lower risk, and a lower P/E when growth expectations are more modest or risks are higher.

FactSet Research Systems currently trades on a P/E of 15.04x. This is below the Capital Markets industry average P/E of 42.40x and the peer group average of 25.24x. Simply Wall St also provides a proprietary “Fair Ratio” of 13.22x, which reflects the P/E that might be expected given factors such as the company’s earnings profile, industry, profit margin, market cap and risk characteristics.

This Fair Ratio is more tailored than a simple comparison with peers or the broad industry, because it adjusts for company specific traits rather than assuming that all businesses in the group deserve the same multiple. Comparing the current P/E of 15.04x with the Fair Ratio of 13.22x suggests the shares trade on a higher multiple than this model implies.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your FactSet Research Systems Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St give you a clear story behind your numbers by linking your view of FactSet Research Systems to your own revenue, earnings and margin assumptions. These flow through to a fair value that you can compare with the current share price to decide if it suits your buy or sell rules.

Each Narrative is created and shared by investors on the Community page, so you can see different takes on the same stock. The underlying forecasts and fair value update automatically as fresh information such as earnings releases or news is fed into the model.

For FactSet Research Systems, one investor might build a Narrative around a fair value of US$313.99 with assumptions such as a 15.0% revenue growth rate, a 25.40% profit margin and a future P/E of 12.83x. Another might anchor a more cautious Narrative at a fair value of US$253.31 using a 5.52% revenue growth rate, a 25.26% profit margin and a future P/E of 14.38x. Seeing those ranges side by side helps you decide which story feels closest to your own expectations before acting on the price.

Do you think there's more to the story for FactSet Research Systems? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.